Columbia Banking System(COLB) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Columbia Banking System achieved strong Q2 2025 profitability, improved net interest margin, and stable credit quality, while advancing strategic growth initiatives CEO Commentary CEO Clint Stein highlighted Q2 2025 results reflecting a focus on profitability and balance sheet optimization, driven by commercial loan growth, improved net interest margin, and expense discipline, alongside acquisition and branch expansion progress - The second quarter results demonstrate a focus on profitability and balance sheet optimization[1] - Commercial loan growth outpaced runoff in transactional portfolios, and net interest margin benefited from loan repricing, controlled deposit pricing, and a rebound in securities yields[1] - Continued expense discipline supported strong performance, even with reinvestment in the growing franchise and planning for the Pacific Premier acquisition[1] - Customer deposits declined due to normal seasonal activity and increased cash usage, but the 'Business Bank of Choice' strategy continues to attract new relationships[1] Q2 2025 Highlights Q2 2025 saw a significant increase in net interest income and net interest margin, a decrease in non-interest expense due to non-recurring items, stable credit quality metrics, and strong capital ratios, alongside branch expansion and new deposit attraction - Net interest income increased by $21 million from the prior quarter, driven by higher interest income on loans and investment securities and relatively stable funding costs[3] - Net interest margin (NIM) was 3.75%, up 15 basis points from the prior quarter, as asset yields increased and the cost of interest-bearing liabilities decreased by 2 basis points[3] - Non-interest expense decreased by $62 million, primarily due to a legal settlement and severance expense in the first quarter that did not repeat[3] - Net charge-offs were 0.31% of average loans and leases (annualized), compared to 0.32% in the prior quarter, indicating stable credit quality[3] - Estimated total risk-based capital ratio was 13.0% and estimated common equity tier 1 risk-based capital ratio was 10.8%[3] - A small business and retail campaign brought over $450 million in new deposits and generated new SBA lending relationships[3] - Opened two new branches in Arizona and one in Eastern Oregon, strengthening support for bankers and customers[3] Q2 2025 Key Financial Data Summary Columbia Banking System reported strong financial performance in Q2 2025, with net income of $152 million and diluted EPS of $0.73, significantly up from the prior quarter, with key metrics like Return on Average Assets and Net Interest Margin also showing substantial improvement | Metric | 2Q25 | 1Q25 | 2Q24 | | :--------------------------------- | :----- | :----- | :----- | | Net income ($ thousands) | $152,423 | $86,609 | $120,144 | | Earnings per common share - diluted | $0.73 | $0.41 | $0.57 | | Operating earnings per common share - diluted | $0.76 | $0.67 | $0.67 | | Net interest income ($ thousands) | $446,446 | $424,995 | $427,449 | | Net interest margin | 3.75% | 3.60% | 3.56% | | Return on average assets | 1.19% | 0.68% | 0.93% | | Return on average common equity | 11.56% | 6.73% | 9.85% | | Efficiency ratio | 54.29% | 69.06% | 59.02% | | Total assets ($ billions) | $51.9 | $51.5 | $52.0 | | Loans and leases ($ billions) | $37.6 | $37.6 | $37.7 | | Deposits ($ billions) | $41.7 | $42.2 | $41.5 | | Book value per common share | $25.41 | $24.93 | $23.76 | | Tangible book value per common share | $18.47 | $17.86 | $16.26 | Organizational Update Columbia Banking System is progressing with the Pacific Premier acquisition and expanding its branch network to strengthen customer support and attract new relationships Pacific Premier Acquisition Columbia Banking System is on track to acquire Pacific Premier Bancorp, Inc., with shareholder approval secured and an anticipated closing date as soon as September 1, 2025, pending regulatory approvals, while integration efforts are progressing smoothly - Shareholders of both Columbia Banking System and Pacific Premier Bancorp, Inc. overwhelmingly approved the combination at their respective special meetings on July 21, 2025[6] - The transaction is anticipated to close as soon as September 1, 2025, pending regulatory approvals and satisfaction of other customary closing conditions[6] - Integration efforts are progressing as planned, driven by comprehensive preparation of cross-company teams led by Columbia's Integration Management Office[6] Branch Network Expansion Columbia expanded its physical footprint by opening two new branches in Arizona (Phoenix and Mesa) and one in Eastern Oregon, aiming to strengthen support for existing customers and attract new relationships in both metropolitan and underserved rural communities - Columbia expanded its Arizona footprint with the opening of its second branch in Phoenix and its first in Mesa, bringing the total number of branches in the state to four[7] - A branch was also opened in Eastern Oregon, restoring essential banking services to a bank-less rural community[7] - The branch strategy encompasses thriving metropolitan areas and core community markets, supporting bankers and strengthening opportunities to bring new relationships[7] Financial Performance Analysis (Narrative) Q2 2025 financial performance was driven by increased net interest income and margin, a slight non-interest income decrease, and a significant non-interest expense reduction Net Interest Income and Margin Net interest income increased by $21 million quarter-over-quarter to $446 million, driven by higher interest income from loans and investment securities and stable funding costs, with net interest margin improving by 15 basis points to 3.75% due to increased asset yields and a slight decrease in interest-bearing liability costs - Net interest income was $446 million for Q2 2025, up $21 million from the prior quarter[8] - The increase reflects higher interest income earned on loans and investment securities and relatively stable funding costs[8] - Net interest margin was 3.75% for Q2 2025, up 15 basis points from 3.60% in Q1 2025[9] - The yield on taxable investment securities increased to 4.22% (from 3.72%), and the average yield on the loan portfolio increased by 8 basis points to 6.00%[9] - The cost of interest-bearing deposits was unchanged at 2.52%, and the cost of interest-bearing liabilities decreased 2 basis points to 2.78%[9] Non-Interest Income Non-interest income decreased by $2 million to $64 million in Q2 2025, primarily due to fair value adjustments and mortgage servicing rights hedging activity, but excluding these volatile items, non-interest income increased by $8 million, driven by higher card-based fees and growth in other core fee-generating businesses - Non-interest income was $64 million for Q2 2025, down $2 million from the prior quarter[10] - The decrease was driven by quarterly changes in fair value adjustments and mortgage servicing rights (MSR) hedging activity, resulting in a net fair value loss of $1 million in Q2 compared to a $9 million gain in Q1[10] - Excluding these items, non-interest income was up $8 million, primarily due to higher card-based fee income and growth in other core fee-generating businesses like swap-related income, financial services, trust revenue, and treasury management fees[10] Non-Interest Expense Non-interest expense significantly decreased by $62 million to $278 million in Q2 2025, primarily because a $55 million legal settlement accrual and $15 million severance expense from Q1 did not recur, with operating non-interest expense seeing a slight decrease of $1 million when excluding these and other non-recurring items - Non-interest expense was $278 million for Q2 2025, down $62 million from the prior quarter[11] - The decrease was primarily due to a $55 million accrual related to a legal settlement and $15 million in severance expense in the first quarter, which did not repeat[11] - Excluding the legal settlement, exit and disposal costs, and merger and restructuring expense, non-interest expense was $269 million, down $1 million from the prior quarter[11] Balance Sheet Analysis (Narrative) Total consolidated assets increased to $51.9 billion, with stable loans, decreased deposits, and increased borrowings, while available liquidity remained strong Total Assets and Liquidity Total consolidated assets increased to $51.9 billion as of June 30, 2025, from $51.5 billion in